At first glance, there is nothing good in having debts. This is a financial burden that limits a person's expenses, and sometimes leads to a real crisis. But, oddly enough, you can make the debt work for yourself. It is enough to choose the right tactics of financial management, having familiarized yourself with the types of debts.
Useful debts
These are loans that are used for specific purposes to improve living conditions or personal development. For example, we can talk about the following investments:
- Home acquisition. Mortgages allow people to directly improve housing conditions long before the moment when they will have the opportunity to make such an acquisition with their own funds.
- Buying a car. Not so large-scale and, perhaps, not always necessary, but in some cases economically justified acquisition. For example, if it is currently possible to buy a car at a substantial discount covering interest on the loan.
- Getting an education. The area in which time plays a particularly important role. And again, credit will come to the rescue, saving valuable years.
Inefficient debts
In this case, we can talk about loans that are taken with a short period for the purchase of less important things. For example, it can be clothes, small equipment, organization of celebrations and travels. The problem with such debts is that they do not bring economic benefits and do not always justify themselves. The key negative factor is their optionality, while the need for payments also remains with interest.
Bad debts
The most dangerous case in which debts are taken with high interest rates and not even in official banking organizations. Such loans, as a rule, lead their consumers to debt holes, when all subsequent loans no longer bring anything, but only work to cover interest. Thus, the process of progressive debt starts when a person approaches a situation of complete financial collapse. As a result, lenders turn to collectors using out-of-court debt collection mechanisms.
How to manage your debt?
There are several universal rules for the control and management of loans taken, which will help to get out of debtor status with maximum benefit:
- Accounting for debts. You must always be aware of debt lists. It is important to consider to whom, how much and in what time frame it is necessary to return the funds taken.
- Formation of a calendar of payments. A document is drawn up in which, for a certain period of time, the dates on payments are signed with the expectation of a systematic repayment of the debt.
- Timely payments. One of the most important rules is to never skip payments on a payment schedule.
- Prioritization of debts. It is more profitable to repay some loans first, based on interest rates and time payments. But the mechanism of combining debts into one general account is also practiced, if there are no grounds for approving priorities. In this case, debt accounting is simply facilitated.
- Allocation of the debt fund from the budget. Each month, a certain amount of income should be allocated specifically for paying off debt.
The negative image of debt as a financial instrument is largely due to the inability of many people to use it correctly. Loans may well be useful for consumers with a wide range of incomes.And if you competently approach their management, then the benefit will be obvious. And as a basic and general principle of debt management, you can take a simple rule: as time passes, it should decrease, not increase. For this condition to be fulfilled, you may have to limit some costs.